LEGISLATIVE ASPECTS OF INTANGIBLE ASSETS
Intangible assets do not have a tangible form, but are the company's property that can generate income. In general, intangible assets mean objects of intellectual property of an enterprise that are used in its business activities for a long time and have a monetary value.
According to current legislation, not all intellectual property objects can be considered intangible assets. The Tax Code of the Russian Federation (hereinafter referred to as the Tax Code of the Russian Federation) and PBU 14/2007 “Accounting for intangible assets” (approved by Order of the Ministry of Finance of Russia dated December 27, 2007 No. 153n (as amended on May 16, 2016)) provides for a number of conditions that intangible assets must comply with.
In order for intellectual property to be considered an intangible asset, it must have a useful life in the company’s activities for more than a year and bring economic benefit to the company. The company must also have documents confirming the existence of this intangible asset.
Article 257 of the Tax Code of the Russian Federation states that the following cannot be classified as objects of intangible assets of an enterprise :
- research, development and technological work that did not produce a positive result;
- intellectual and business qualities of the organization’s employees, their qualifications and ability to work.
The procedure for accounting for intangible assets is legally regulated by PBU 14/2007, which provides an expanded interpretation of the criteria for classifying accounting objects as intangible assets (Table 1).
| Table 1. PBU 14/2007 on intangible assets | |
| Contents of the PBU | Requirements and criteria |
| Clause 2. Intangible assets do not fall under the criteria | Unfinished and undocumented R&D |
| R&D that did not produce a positive result | |
| Material media (things) in which the results of intellectual activity are expressed | |
| Financial investments | |
| Clause 3. Conditions for accepting an object for accounting as intangible assets | The facility is capable of bringing economic benefits to the organization in the future |
| The organization has the right to receive economic benefits that this object is capable of bringing in the future (including the organization has properly executed documents confirming the existence of the asset itself and the right of this organization to the result of intellectual activity | |
| The possibility of separating or separating (identifying) an object from other assets | |
| The asset is intended to be used for a long time, that is, a useful life exceeding 12 months or a normal operating cycle if it exceeds 12 months | |
| The organization does not expect to sell the asset within 12 months or the normal operating cycle if it exceeds 12 months | |
| The actual (initial) cost of the object can be reliably determined | |
| The object has no material form | |
The actual value of intangible assets is recognized as an amount calculated in monetary terms, equal to the amount of payment in cash and other forms or the amount of accounts payable, paid or accrued by an organization upon acquisition, creation of an asset and provision of conditions for using the asset for the planned purposes. According to PBU 14/2007, an accounting unit accounting for intangible assets is an inventory item.
An inventory object of intangible assets is recognized as a set of rights arising from one patent, certificate, agreement on the alienation of the exclusive right to a result of intellectual activity or to a means of individualization, or in another manner established by law, intended to perform certain independent functions. A complex object that includes several protected results of intellectual activity (a movie, another audiovisual work, a theatrical performance, a multimedia product, a single technology) can also be recognized as an inventory item of intangible assets.
Each intangible asset is accepted as part of the organization’s property at its actual (initial) cost, determined as of the date of its acceptance for accounting.
PBU 14/2007 contains a list of costs that can be taken into account when calculating the actual cost of an intangible asset (Table 2).
| Table 2. Formation of the value of intangible assets according to PBU 14/2007 | |
| Contents of the PBU | Types of expenses |
| Clause 8. Expenses included in the cost of intangible assets upon its acquisition | Amounts paid in accordance with the agreement on the alienation of the exclusive right to the result of intellectual activity or to a means of individualization to the copyright holder (seller) |
| Customs duties and customs fees | |
| Non-refundable amounts of taxes, government, patent and other duties paid in connection with the acquisition of intangible assets | |
| Remunerations paid to the intermediary organization and other persons through which the intangible asset was acquired | |
| Amounts paid for information and consulting services related to the acquisition of intangible assets | |
| Other expenses directly related to the acquisition of intangible assets and ensuring conditions for using the asset for the intended purposes | |
| Clause 9. Expenses included in the cost of intangible asset when creating it | Amounts paid for the performance of work or the provision of services to third parties under orders, contract agreements, author's order agreements or contracts for the performance of research, development or technological work |
| Expenses for remuneration of workers directly involved in the creation of intangible assets or in the performance of research, development or technological work under an employment contract | |
| Deductions for social needs (including unified social tax) from wages of employees | |
| Expenses for the maintenance and operation of research equipment, installations and structures, other fixed assets and other property, depreciation of fixed assets and intangible assets used directly in the creation of intangible assets, the actual (initial) cost of which is formed | |
| Other expenses directly related to the creation of intangible assets and providing conditions for using the asset for the intended purposes | |
| Clause 10. Expenses not included in the cost of intangible assets upon its acquisition or creation | Reimbursable amounts of taxes, except for cases provided for by the legislation of the Russian Federation |
| General business and other similar expenses, except when they are directly related to the acquisition and creation of assets | |
| Expenses for research, development and technological work in previous reporting periods, which were recognized as other income and expenses | |
| Expenses on loans and credits received are not expenses for the acquisition or creation of intangible assets, except in cases where the asset, the actual (initial) cost of which is formed, is classified as investment | |
| Points 11–15. The cost of intangible assets in other cases of its formation | Clause 11. The actual (initial) cost of intangible assets contributed as a contribution to the authorized (share) capital, authorized fund, mutual fund of an organization is recognized as its monetary value agreed upon by the founders (participants) of the organization, unless otherwise provided by the legislation of the Russian Federation |
| Clause 12. The actual (initial) cost of intangible assets accepted for accounting during the privatization of state and municipal property by transforming a unitary enterprise into an OJSC is determined in the manner prescribed for the reorganization of organizations in the form of transformation | |
| Clause 13. The actual (initial) value of intangible assets received by an organization under a gift agreement is determined based on its current market value on the date of acceptance for accounting as an investment in non-current assets | |
| Clause 14. The actual (initial) cost of intangible assets acquired under an agreement providing for the fulfillment of obligations (payment) not in cash is determined based on the value of assets transferred or to be transferred by the organization | |
| Clause 15. If in relation to intangible assets specified in paragraphs. 11–14, the costs provided for in paragraphs arise. 8, 9, such expenses are also included in the actual (initial) cost | |
PBU 14/2007 regulates the following aspects of accounting for intangible assets:
- subsequent assessment of the value of intangible assets (paragraphs 16–22);
- amortization of intangible assets (paragraphs 23–33);
- write-off of intangible assets (paragraphs 34–36);
- accounting for transactions related to granting/receiving the right to use intangible assets (clauses 37–39);
- disclosure of information about intangible assets in the financial statements (paragraphs 40, 41);
- business reputation as an object of intangible assets (paragraphs 42–45).
I. General provisions
1. These Regulations establish the rules for the formation in accounting and financial statements of information on intangible assets of organizations that are legal entities under the legislation of the Russian Federation (with the exception of credit organizations and budgetary institutions).
2. This Regulation does not apply to:
- a) research, development and technological work that did not produce a positive result;
- b) research, development and technological work that has not been completed and not formalized in accordance with the procedure established by law;
- c) material media (things) in which the results of intellectual activity and equivalent means of individualization are expressed (hereinafter referred to as means of individualization);
- d) financial investments.
3. To accept an object for accounting as an intangible asset, the following conditions must be simultaneously met:
- a) the object is capable of bringing economic benefits to the organization in the future, in particular, the object is intended for use in the production of products, when performing work or providing services, for the management needs of the organization or for use in activities aimed at achieving the goals of creating a non-profit organization (including in business activities carried out in accordance with the legislation of the Russian Federation);
- b) the organization has the right to receive economic benefits that this object is capable of bringing in the future (including the organization has properly executed documents confirming the existence of the asset itself and the rights of this organization to the result of intellectual activity or a means of individualization - patents, certificates, other security documents , an agreement on the alienation of the exclusive right to the result of intellectual activity or to a means of individualization, documents confirming the transfer of the exclusive right without an agreement, etc.), and there are also restrictions on the access of other persons to such economic benefits (hereinafter referred to as control over the object);
- c) the possibility of separating or separating (identifying) an object from other assets;
- d) the object is intended to be used for a long time, i.e. useful life exceeding 12 months or normal operating cycle if it exceeds 12 months;
- e) the organization does not intend to sell the object within 12 months or the normal operating cycle if it exceeds 12 months;
- f) the actual (initial) cost of the object can be reliably determined;
- g) the object’s lack of material form.
4. If the conditions established in paragraph 3 of these Regulations are met, intangible assets include, for example, works of science, literature and art; programs for electronic computers; inventions; utility models; breeding achievements; production secrets (know-how); trademarks and service marks. The composition of intangible assets also takes into account business reputation that arose in connection with the acquisition of an enterprise as a property complex (in whole or part thereof). Intangible assets are not: expenses associated with the formation of a legal entity (organizational expenses); intellectual and business qualities of the organization’s personnel, their qualifications and ability to work.
5. The accounting unit for intangible assets is an inventory item. An inventory object of intangible assets is recognized as a set of rights arising from one patent, certificate, agreement on the alienation of the exclusive right to a result of intellectual activity or to a means of individualization, or in another manner established by law, intended to perform certain independent functions. A complex object that includes several protected results of intellectual activity (a movie, another audiovisual work, a theatrical performance, a multimedia product, a single technology) can also be recognized as an inventory item of intangible assets.
CLASSIFICATION OF INTANGIBLE ASSETS
Intangible assets are quite diverse in nature, so they are classified by type into four groups:
1) objects of patent law;
2) objects of copyright;
3) means of individualization;
4) other objects of intangible assets.
The first group includes intangible assets , which represent the owner’s exclusive rights to intellectual property objects governed by patent law. This group can be divided into three components:
- rights to trademarks and trademarks used by the copyright holder in the course of commercial activities;
- inventions , including the production of industrial designs, utility models, breeding achievements, animal breeds, etc.;
- results of creative activity obtained from the use of patents and licensing agreements (for example, a franchise agreement or a commercial concession agreement).
The second group of intangible assets consists of exclusive rights to intellectual property protected by copyright. It is divided into three subgroups:
- humanitarian objects of NMA in the form of works of literature, painting, music, cinematography, objects of related rights, etc.;
- technical objects of NMA: databases, software, works of architecture and urban planning, design and technological documentation, R&D reports, etc.;
- scientific objects of NMA in the form of a scientific idea, a scientific experiment, a scientific discovery, a scientific work.
The third group of intangible assets unites objects that represent the exclusive rights of the owner of a means of individualization of a legal entity, its products or services. The following areas can be distinguished in this group:
- brand names, which include the name of the company, the name of the place of origin of goods, etc.;
- commercial designations of a company's products or services.
The fourth group of intangible assets combines objects arising as a result of the company’s economic activities:
- production secrets (know-how): recipe, technology, methodology, etc.;
- business reputation (goodwill) of the company, which is an assessment of the financial and commercial result of the company’s business development.
In addition to the indicated groups of intangible asset objects, an enterprise can use in its activities intangible assets transferred to it for temporary use on the basis of granting non-exclusive rights of use (license, franchise, etc.). Such intangible assets (programs, technologies, etc.) must be taken into account for each object, but outside the balance sheet of the enterprise.
VII. Disclosure of information in financial statements
40. At a minimum, the following information is subject to disclosure as part of information about the organization’s accounting policies:
- methods for valuing intangible assets not acquired for cash;
- the useful life of intangible assets adopted by the organization;
- methods for determining depreciation of intangible assets, as well as the established coefficient for calculating depreciation using the reducing balance method;
- changes in the useful lives of intangible assets;
- changes in the methods of determining the amortization of intangible assets.
41. In the financial statements of an organization, at least the following information on certain types of intangible assets is subject to disclosure:
- actual (initial) cost or current market value, taking into account the amounts of accrued depreciation and impairment losses at the beginning and end of the reporting year;
- the cost of write-off and receipt of intangible assets, other cases of movement of intangible assets;
- the amount of accrued depreciation on intangible assets with a certain useful life;
- the actual (initial) cost or current market value of intangible assets with an indefinite useful life, as well as factors indicating the impossibility of reliably determining the useful life of such intangible assets, highlighting the significant factors;
- the cost of revalued intangible assets, as well as the actual (initial) cost, amounts of revaluation and depreciation of such intangible assets;
- the remaining useful life of intangible assets in activities aimed at achieving the goals of creating non-profit organizations;
- the value of intangible assets subject to impairment in the reporting year, as well as the recognized impairment loss;
- the name of intangible assets with a fully repaid value, but not written off from accounting and used to obtain economic benefits;
- name, actual (initial) cost or current market value, useful life and other information regarding the intangible asset, without knowledge of which it is impossible for interested users to assess the financial position of the organization or the financial results of its activities.
When disclosing information on intangible assets in the financial statements, information on intangible assets created by the organization itself is disclosed separately.
FEATURES OF ACCOUNTING FOR INTANGIBLE ASSETS
In accounting, intangible assets are accounted for in account 04 “ Intangible assets ” in the analytics for each intangible asset. The account is active. The debit side of the account reflects the balance and receipt of intangible assets; the credit side reflects the disposal of intangible assets.
Analytical accounting of intangible assets is carried out for each individual object or by type of expenses for research, development and technological work
Intangible assets can be added to the balance sheet of an enterprise through various types of business transactions:
- purchase for cash;
- creation on our own and/or through the involvement of third-party contractors on a contractual basis;
- acquisition on exchange terms;
- receipts from the founders in the authorized capital;
- free admission;
- receipt in the form of a contribution to joint activities.
The basis for capitalization of an intangible asset is a patent or certificate of right of use.
III. Subsequent valuation of intangible assets
16. The actual (initial) cost of an intangible asset at which it is accepted for accounting is not subject to change, except in cases established by the legislation of the Russian Federation and these Regulations. A change in the actual (initial) cost of an intangible asset at which it is accepted for accounting is allowed in cases of revaluation and impairment of intangible assets.
17. A commercial organization may, no more than once a year (at the beginning of the reporting year), revalue groups of similar intangible assets at the current market value, determined solely based on data from the active market of these intangible assets.
18. When deciding on the revaluation of intangible assets included in a homogeneous group, it should be taken into account that in the future these assets must be revalued regularly so that the value at which they are reflected in the financial statements does not differ significantly from the current market value.
19. Revaluation of intangible assets is carried out by recalculating their residual value.
20. The results of the revaluation are accepted when generating the balance sheet data at the beginning of the reporting year. The results of the revaluation are not included in the balance sheet data of the previous reporting year, but are disclosed by the organization in the explanatory note to the financial statements of the previous reporting year.
21. The amount of additional valuation of intangible assets as a result of revaluation is credited to the additional capital of the organization. The amount of revaluation of an intangible asset, equal to the amount of its depreciation carried out in previous reporting years and attributed to the account for retained earnings (uncovered loss), is credited to the account for accounting for retained earnings (uncovered loss). The amount of write-down of an intangible asset as a result of revaluation is charged to the account of retained earnings (uncovered loss). The amount of the writedown of an intangible asset is included in the reduction of the organization’s additional capital formed from the amounts of the additional valuation of this asset carried out in previous reporting years. The excess of the amount of depreciation of an intangible asset over the amount of its revaluation credited to the organization's additional capital as a result of revaluation carried out in previous reporting years is charged to the account of retained earnings (uncovered loss). The amount attributed to the account of retained earnings (uncovered loss) must be disclosed in the financial statements of the organization. When an intangible asset is disposed of, the amount of its revaluation is transferred from the organization’s additional capital to the organization’s retained earnings (uncovered loss) account.
22. Intangible assets may be tested for impairment in the manner prescribed by International Financial Reporting Standards.
